Bitcoin Investors Just Had $350 Million Of Their Money Stolen

Bitcoin is two things at once: A) an interesting experiment that will largely drive the future of digital grey-market currencies and B) a fad among that guy from your high school who never grew out of his Ayn Rand phase. To this guy, Bitcoin was the future! Bitcoin was going to free us from the tyranny of having to pay for government services! Bitcoin would show we didn’t need all those pesky “currency protections” and “financial market regulations!”

Guess what! Now he’s screwed!

Mt.Gox, which you might remember got in hot water with the US government for not filling out a form properly, is currently completely closed for business. If you had Bitcoins with them, you can’t get at them. There’s a lot of discussion about why, precisely, Mt. Gox is offline, but the rumor, according to Valleywag, is essentially that a company that used to exist to trade collectible cards for a game is, shockingly, not that good at protecting people’s money:

According to a leaked document, purportedly from Mt.Gox itself, the exchange has lost 744,408 BTC (around $350 million) in theft and fraud that was never reported, and has nowhere near enough real money to satisfy all its existing customers who want to pull their virtual money out. In short: Mt.Gox users are f***ed, and Mark Karpele, the exchange’s CEO, is gone without owing anything to anyone.

This is unconfirmed, we should note, but essentially what Gox is trying to do, in shutting down their site, is prevent a bank run. You remember bank runs, right? From high school? When a poorly regulated financial system allowed banks to crash, costing everybody who didn’t get their money out in time a fortune? Those? Oh, and did we happen to mention that the government of Japan, where Bitcoin is based, refuses to help anybody sucked into this because they basically think Bitcoin is Monopoly money?

The best case scenario here is that Mt. Gox comes back online and gives back all the Bitcoins it’s stored, which it can technically do because they’re just basically lines of code, not minted gold coins. The worst case scenario is $350 million has vanished completely, untraceably, and everybody who held those coins can basically just impotently rage on Reddit.

This was nothing more than a matter of time: Bitcoin is absurdly volatile and Bitcoin bank robbery happens on a near daily basis. And we do feel bad for those who lost real money to this fad. But when the next digital currency comes along, this should be something all involved keep in mind.

georgemcbay:Yes, but in return you are learning a valuable lesson, which is that “loose” spells the word that means the opposite of tight and the word you were looking for is “lose”, which is the opposite of win or gain.

Why, yes! To be fair, that requires a hell of a lot of number crunching and will be extremely hard to do, not to mention compromise cryptographic systems far beyond Bitcoin. But why bother when you can apparently just steal millions.

I guess. But when the possible payout can be in tens if not hundreds of millions wouldn’t pretty much everybody get cracking on it? With so many people gunning for it wouldn’t it be just a matter of tune

Hardly a surprise. That exchange has been bleeding to death for over a year. From the 3rd party transaction mess to being raided and having millions confiscated by the US government it was on death row.

“a fad among that guy from your high school who never grew out of his Ayn Rand phase.”

Which is weird as shit to me as those guys inevitably hated fiat money which is exactly what cryptocurrency is. It’d make sense if they were goldbugs (although those people are dumb as shit too; if the shit really does hit the fan that badly, people with guns are just gonna steal your gold if they want it.), but this doesn’t make sense, except insofar as those guys are also huge fucking nerds.

And those reddit comments are just fucking golden, it’s amazing how many are “well, this is a setback, but I’m certain this will work eventually” – they’re eagerly awaiting their next opportunity to get fleeced.

Well, it’s not technically a fiat currency, but I’d argue that it’s also not something like gold. Gold actually has some intrinsic value in that you can use it for stuff (it’s a good conductor). Bitcoin is just essentially Canadian Tire Money.

“Fiat” here meaning 1BTC = 1BTC because “we say so,” not because 1BTC = 1oz of gold (or whatever). Rarity alone is insufficient to simply grant value, the object itself must have some use independent of currency.

And actually, as a practical matter, it’s probably wrong to call it a currency; yes, that’s how the designer envisioned it, but in practice, bitcoin’s function was as a speculation instrument, not unlike tulips in early 17th-century Netherlands. People accepting bitcoins were doing so only on the expectation that the bubble would continue and they’d be able to cash out.

@TFBuckFutter:
Yes! Except, even during the dotcom boom, there was the expectation that what you were investing in was a “business” that would eventually start making money, even if that expectation was completely unfounded and should have been abandoned after doing even a modicum of due diligence.

Rarity alone is insufficient to simply grant value, the object itself must have some use independent of currency.

And actually, as a practical matter, it’s probably wrong to call it a currency […]

No. According to your definition of currency, the U.S. Dollar isn’t one, or what is the practical use of a printed piece of paper/some bytes in a computer, which are the most common physical representations of Dollars nowadays?

As you may have guessed, I believe in the Chartalist definition of money, that is, everything that two parties agree on to use in an exchange is money. In particular, the use of US Dollars is actually enforced by the government since it has legal tender status.

So applied to Bitcoin: If there ever were enough people who would accept it as payment for goods or services (or as taxes), it would be a currency then. Just as dotcom stocks were a currency because people actually agreed to sell their labour-power for them.

TL;DR. I want to emphasize that beside some technical details (which I nevertheless believe are important), I agree with you that trying to store values in a form that hasn’t strong government backing is a dumb idea.

@Baltimore Dan
Some basic information on speculation. All you have to do is to find some guys who have the same opinion on Bitcoins as you, they only need to buy them later than you so you can cash in.